Natural Gas Prices Supported by Improving Supply-Demand Prospects

  • NGAS
    (${instrument.percentChange}%)

NGAS Analysis

After the 2022 all-time highs in the aftermath of the Russian invasion in Ukraine, natural gas prices collapsed in the second half as demand diminished. As a response to the attack, the European Union sought to limit its reliance on Russia and reduce its overall demand. Consumption dropped 19% from August 2022 to January 23 and members states are encouraged to continue reducing their gas consumption by 15% until Q1 2025. [1]

Global demand rose by just 0.5% last year according to the International Energy Agency (IEA) [2], with progress on renewables and hot weather being among the contributors. 2023 was the hottest year ever and 2024 started with the warmest January on record, according to Copernicus [3]. As a result, NGAS continued its slump into 2023 and current year, hitting nearly four-year lows in February.

On the other hand, IEA sees demand to accelerating sharply in 2024, forecasting growth of 2.5%, due to lower prices and expectations of colder temperatures. It also anticipates supply to remain tight, with a limited increase this year. The agency projects 3.5% supply growth, well below the 8% experienced in 2016-2020.

Furthermore, key natural gas drillers in the US have slashed their production targets recently. Chesapeake, forecasts production of 2.65-2.75 billion cubic feet per day (cfd) in 2024, a more than 20% y/y decline [4]. Chesapeake is expected to become the largest US producer after agreeing to buy Southwestern Energy [5], in the latest manifestation of the consolidation trends in the energy sector.

Another major producer, EQT, lowered its full year guidance by around 50 billion cubic feet in February [6]. Furthermore, this month it announced an output cut of one billion cubic feet per day through the end of the first quarter. [7]

These developments and prospects of better supply-demand equilibrium have helped NGAS recover from its multi-year lows. It now tries to take out the pivotal EMA200 and 23.6% Fibonacci. This could send it to the 38.2% levels (2.2393), although we are still cautious around greater rebound. Global production growth is still expected to outpace consumption, while below the EMA200 and the 38.2% Fibonacci, risk for lower lows is high (1.5235).

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 05 Mar 2024 https://www.consilium.europa.eu/en/press/press-releases/2024/03/04/security-of-gas-supply-member-states-agree-on-recommendation-to-continue-voluntary-demand-reduction-measures/

2

Retrieved 05 Mar 2024 https://www.iea.org/news/global-gas-demand-set-for-stronger-growth-in-2024-despite-heightened-geopolitical-uncertainty

3

Retrieved 05 Mar 2024 https://climate.copernicus.eu/copernicus-2024-world-experienced-warmest-january-record

4

Retrieved 05 Mar 2024 https://filecache.investorroom.com/mr5ir_chk/860/CHK_4Q_FY23_Earnings_Presentation.pdf

5

Retrieved 05 Mar 2024 https://investors.chk.com/2024-01-11-CHESAPEAKE-ENERGY-CORPORATION-AND-SOUTHWESTERN-ENERGY-TO-COMBINE-TO-ACCELERATE-AMERICAS-ENERGY-REACH

6

Retrieved 05 Mar 2024 https://s24.q4cdn.com/922296017/files/doc_financials/2023/q4/EQT-Q4-2023-Earnings-Release.pdf

7

Retrieved 24 Jul 2024 https://ir.eqt.com/investor-relations/news/news-release-details/2024/EQT-Announces-Strategic-Production-Curtailment/default.aspx

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